Page 1 TVNZ Annual Report FY2014 Page 2 TVNZ Annual Report FY2014
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Page 1 TVNZ Annual Report FY2014 Page 2 TVNZ Annual Report FY2014 Engaging the hearts and minds of New Zealanders with the most watched content Page 3 TVNZ Annual Report FY2014 Contents Highlights 4 Chairman's Introduction 5 Chief Executive’s Overview 6 Financial Performance 12 TVNZ in Society 16 Performance and Engagement Measures 19 Financial Statements 26 Corporate Governance 68 Directors' Profiles 70 Main Locations 71 Cover: Seven Sharp’s Toni Street and Mike Hosking Opposite: New Zealand’s Got Talent This page: Shortland Street Back cover: The Big Bang Theory (top left), My Kitchen Rules (top right), Broadchurch (bottom) Page 4 TVNZ Annual Report FY2014 Highlights INCREASE IN 30% ONLINE ADVERTISING $360.6m REVENUE 25% DECREASE IN OPERATING 3% EXPENSES PROFIT INCREASE TOTAL REVENUE INCREASE IN 78% TVNZ ONDEMAND No. 1 NZ's STREAMS Top 20 INCREASE IN ONENEWS.CO.NZ 63% VIDEO STREAMS NEW ZEALAND SHOWS AIRED ON NETWORK TVNZ CHANNELS Page 5 TVNZ Annual Report FY2014 Chairman's Introduction This financial year TVNZ achieved the earnings result forecast in our Statement of Intent and comfortably exceeded the target for shareholders’ Return on Equity. Net Profit after Tax was $18.1m, an increase of $3.7m or 25% on the previous year, representing solid growth during a period of transition. With a Return on Equity of 10.8% – against a target of 10.1% - it is pleasing to note consistent growth over the past four years in these two elements of our financial performance. Our balance sheet reflects a number of significant changes this year, of which the most public is the divestment of land and surplus buildings at our Auckland site. The proceeds will help finance the comprehensive refurbishment of our main building so that TVNZ has the technology and the environment required to succeed, well into the next quarter century. I note also our decision to exit our shareholdings in both Hybrid Television and Igloo. By half year we had written down the carrying value of both, and could find no further additional benefit to the company in continuing to contribute as shareholders. Shortly after the close of the year we completed an agreement to sell the TVNZ Archive to the Crown, which allows clearer focus on the core business for TVNZ, while ensuring the collection is available for current and future generations to use and enjoy. During the year we made significant cost savings, largely due to reduced transmission costs as a result of the nation’s switch from analogue to digital broadcasting. We also reduced labour costs by 1.7% as part of our continuing drive to become a leaner and more efficient business. In programming terms we finished the year on a particularly high note, with a 45.5% share of peak audiences and all 20 of the top 20 most watched shows. While television revenue was lower than expected in the second half of the year, prioritised use of our resources and careful cost reduction and management has offset that impact. Online video consumption experienced exponential growth and delivered strong double digit growth in revenue. My thanks to everyone in the company who contributed to the FY2014 result. We begin FY2015 with enthusiasm and a clear sense of direction. Wayne Walden Page 6 TVNZ Annual Report FY2014 Chief Executive's Overview It has been a transformational year for TVNZ. Our TV business is in great shape thanks to the continued strong performance of TV ONE and TV2 and we live in an ‘always on’ world where more and more Kiwis are watching their favourite shows online and multi-screening is commonplace. As much as the media world is changing, one thing that hasn’t It’s been a year of significant developments across the business. changed is New Zealanders’ love of TV shows. Kiwis watch on Here’s how we delivered on our Statement of Intent priorities. average three hours of TV per day and TVNZ content is at the heart of this viewing. Create and source the most As a video content business, TVNZ’s number one priority is to 1 compelling content create and source the most compelling content for New Zealand viewers to enjoy. We’re all about delivering great shows when, where and how our viewers want it – on air, online and on the go. TVNZ aired all 20 of the top 20 most watched shows in FY2014. Our Quite simply, our content is the engine that drives our business, slate of top quality local and international drama, comedy, news our financial results and our future growth. and factual programming delivered a consistently strong on screen performance with nearly one in two viewers choosing to spend The global growth in video consumption over the last few years primetime with TV ONE or TV2. has been phenomenal. Never before has so much television been watched – it’s just that now it’s on screens of all sorts and sizes. Overall New Zealand’s Got Talent was New Zealand’s most At TVNZ we’re focused on maximising our share of TV audiences watched show, ONE News the most watched news, and Sunday and accelerating the online consumption of our content. You the most watched current affairs programme. Seven Sharp has only have to look at the way viewers seized on our multi-screen started its second year strongly and is now starting to challenge coverage of the America’s Cup and FIFA World Cup to see the Shortland Street’s stranglehold on the 7pm timeslot. Shortland enormous public appetite for integrated on air and online offerings. Street remained our most watched local drama, and with 8.8 million streams it was the most popular show on TVNZ OnDemand 2014 was a positive year for TVNZ, financially and operationally in FY2014. – reflecting the progress we’re making as a company and our standing with Kiwi viewers and advertisers. TVNZ continued to secure and deliver an unrivalled depth of first run international content across our platforms. And with NZ on Air’s Our share of advertising revenue was ahead of our share of support, TVNZ continued to deliver more local content and launch audiences and this combined with disciplined cost control in more first run local shows than any other broadcaster – including non-programming areas, saw profits rise by 25% year on year. new series like Step Dave and old faithfuls like Country Calendar. TV revenue was slightly down year on year and was partially With advertisers looking for greater integration opportunities to offset by double digit growth in digital media revenues. showcase their brands, we selectively entered into commercial partnerships to support the making of popular local shows MasterChef New Zealand and Mitre 10 Dream Home. TVNZ OnDemand is the catalyst for our digital growth and a step change in video streams resulted in online advertising revenue increasing 30% for the year. Digital revenue is currently a modest component of the total revenue, but it’s a major driver Expand content accessibility of future growth. 2 These results have fuelled our confidence to invest in the Our content now follows viewers from location to location; future of the business and enable TVNZ to stay at the forefront from their TV screens to their desktops, their smartphones of changing consumer behaviour and trends. to their tablets. Our 2013 America’s Cup coverage optimised this experience for our audiences. The results were telling. At its height, TV viewing peaked at 1.2 million on TV ONE and live streaming topped a quarter of a million people on onenews.co.nz. Page 7 TVNZ Annual Report FY2014 “Our slate of top quality local and international drama, comedy, news and factual programming delivered a consistently strong on screen performance.” KEVIN KENRICK, TVNZ CHIEF EXECUTIVE Page 8 TVNZ Annual Report FY2014 The country’s favourite video on demand service, TVNZ OnDemand clocked up a record 54 million streams in FY2014 – averaging over Partner for pay to view opportunities one million streams per week. Available on New Zealand’s widest range of screens and offering more fast-tracked programmes than 4 ever before, TVNZ OnDemand posted an impressive 78% increase in streams. TVNZ produces Heartland and Kidzone24 linear pay channels and we materially strengthened Kidzone’s audience performance ONE News has been building on its on air leadership and upped its during FY2014. game online. We delivered more news stories, faster on onenews. co.nz, which resulted in a 63% jump in video streams year on year. TVNZ relinquished its stake in both Hybrid Television Services and Igloo during the year and is now more focused on TVNZ We began work on a series of major investments to upgrade our OnDemand as a platform for launching new services in the future. technology capabilities and work is on track to launch an enhanced We continue to talk to a number of external market players to TVNZ OnDemand and onenews.co.nz site in FY2015. explore potential future opportunities to distribute our content. Leverage superior reach to enhance Align cost structures to market reality 3 advertiser opportunities 5 TVNZ captures nearly two out of every three dollars spent on We reduced non programme costs by 12%. As part of a tighter television in the market. Our total TV revenue was $306.8 million, focus on our core business, TVNZ divested surplus land and slightly down on last year. Online advertising revenue, at $12.9 buildings during the year, closed the loss making TVNZ U channel, million, was up 30%. Our results highlight the strong appetite of transferred Access Services to ABLE – a new independent advertisers to leverage video content opportunities to connect captioning and audio description facility, and sold the TVNZ with audiences.